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Inside Story

Ray Suarez brings together newsmakers and insiders to offer perspectives on the issues of the day.



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Us 5, Washington 5, Kenneth Mcclintock 4, U.s. 3, Ray Suarez 3, Island 2, Justin 2, Del Walters 2, United 1, Local Economy 1, Keneth Mcclintock 1, Kenneth Mcclinton 1, SÁnchez 1, Healtly 1, Obama 1, S&p 1, Moody 1, As Shops Board 1, Let Me 1, Carlos 1,
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  Al Jazeera America    Inside Story    Ray Suarez brings together newsmakers and  
   insiders to offer perspectives on the issues of the day.  

    February 26, 2014
    11:30 - 12:01pm EST  

by the way they still have to do it a second time to get into the again us in book of world records, and if you want to buy one, they cost a million dollars. thanks for watching. i'm del walters in new york. "inside story" is next. . >> can the island get back on track economically? it's the inside story. [♪ music ] >> hello, i'm ray suarez. many citizens on the mainland don't even know the people of
puerto rico are american citizens, and have been for almost a century. and many can't tell you why. how did part of the spanish empire end up with american citizens, american military bases, american industry, and the american flag flying along side it's own star and stripes. the colony fell in the united states lapse after the war with spain, and the united states has never thought very much with what to do with puerto rico or puerto ricans after the war was over. it brought evolutionary change legally, economically, culturally. puerto rico obtained self government while high level cases are judged in high level courts, citizens from birth have served in large numbers in every war from the last century, yet don't get to choose the president, have a vote in congress or pay federal income tax.
but the island debates to the island's peculiar status. these issues take a backseat to the problem of puerto rico is in trouble. >> graphic design professional for more than 26 years on the island. owned my own apartment, family close by, clients and so forth. >> today she owns a hardwood flooring company with her husband. she said a drying up economy left them no choice but to leave. >> we could see criminality was rising, and we could see that the buildings, mr. there were run down and a lot of businesses for sale. >> sánchez is one of the thousands who have left puerto rico for work. >> in a lot of businesses, in the main avenues, a lot of homes
for sale. these are in nice neighborhoods, and they would stay for sale for a long time. then you see the grass growing and the trees and all of a sudden this property has been abandoned. this is it. either i move or i'm going to be losing what i have here. >> and in each "for sale" sign sánchez saw cropping on her street a deeper economic problem boiling. junk status. that's how fitch, standard & poor's, and moody 's classifies puerto rico $70 million debt. the per capita income is just over $15,000. half of the poorest american state. and unemployment stands around 15%, double that of the u.s. mainland. >> the more inequality, the less healthy as a country. that's where we're heading right now. we don't stop this vicious
circle, we're going to race to the bottom. >> puerto rico's government is testing a list of austerity measures to climb out of this hardship. tax increases, requesting billions of dollars in new obligation bonds to continue paying the bills. >> we cannot continue financing and operating in a deficit as we have in the last ten years or more. >> reporter: and in washington, puerto rico's representative is pushing for initiatives. >> i wrote the initiatives for the white house task force for puerto rico encouraging the president to include full inclusion of puerto rico in the child tax credit program when the president submits his next budget to congress. >> reporter: as shops board up
and schools crumble crime is escalating. in 2011 over 1,000 people were killed, the highest number in puerto rico history. carlos lost his 15-year-old daughter to a stray bullet in 2012. >> the police are doing nothing, and we have no faith in the justice department in puerto rico. when my little girl was killed, they came and recreated the crime scene, and they stayed as long as there were cameras around. after that they never came back. they act like i see you but i don't know you. >> the island has long struggled with poverty. but today's situation is different. the grip of the u.s. recession was virtually inescapable, draining livelihoods in what seemed like overnight. >> what i know a lot of professionals are leaving. it's not necessarily the person is leaving and they don't have an education. these are people who are prepared, some have higher education, and they said maybe
we should start over. >> since sánchez has left the population has declined by more than 2%. a huge hit. >> you get used to certain things and a certain lifestyle, and then all of a sudden, i'm losing this, so you change. you don't have that lifestyle, but then it comes to a point where you say how far do i have to go before i say, okay, let me reinvent myself and start as something new. >> the question of statehood for puerto rico was again put on the congressional table with population on the move, no financial solutions in sight the solutions for the tiny island remain enormous. >> the way forward is not clear. how did puerto rico get into this predicament, and how did it get out?
joining us for a look for puerto rico on this edition of inside story from the island kenneth mcclinton, former secretary of state and former senator. and from the institute of puerto rican and latino studies in connecticut, and executive director of the national puerto rico chamber of commerce, kenneth mcclintock, let me start with you. this is not something that happened overnight. what's been going on, on the island that's deepened the economic crisis there? >> well, for over 60 years we've been getting special treatment, special temporary treatment. when you have special tax treatment from the federal government that can be wiped away in a minute you're not going to be able to develop sustainable economic growth. for sustainable economic growth you have to have permanent
policies in place. temporary special treatments can only trigger economic spurts but not economic growth. puerto rico needs economic growth since the constitution was approved in 1952 there has been no change in the economic gap. we're one-third of the national economy then, we're still one-third national income per capita today. we have to try something different. in puerto rico in 2012 said they no longer consented to be governed under the present relationship, and for those who chose for a change chose statehood and equality. i think right now the first thing that happens to happen is that the governor has to get everybody together in puerto rico. get all the minds great together, the leaders of the political parties there, with two constraints, what the
constitution said and what the people said, and come up with inside and solutions that will be compatible with the constitution, will not violate the state constitution, and will not violate the people's mandate in november of 2012. >> as is clear from his answer keneth mcclintock is a member of the party that historically supported statehood for puerto rico. professor, let me go to you. he talked about temporary taxing status, and i'm wondering if a world of more mobile capital made it easier to invest in and take it out of puerto rico when things changed. it used to be when you drove along on the highway you could see quite apparently the signs that american pharmaceutical and computer companies, shoe and apparel manufacturers were investing in manufacturing in puerto rico. then when things changed an it was very easy to pluck up those
facilities and plant them somewhere else. >> sure, part of the historical context that needs to be discussed is why did they leave? why did this close? why did we eliminate subsidies that were in place that was generating income for the island. it created a situation where there was an alternative to bail out off the island. the second question that needs to be asked, how does an incorporated status of the island contribute to the market. under the current circumstances those doors are closed. the doors for businesses to enter into global markets. >> we've got long view
historical answers from our other two guests. but if you look at short-term trends. there are empty hotels. the government had to layoff 10% of the entire workforce of the island. there are houses boarded up and shops closed forever never to be opened. this is dire, isn't it? >> absolutely. this is a tremendous structural problem in the economy in puerto rico. and they described pretty strong arguments for disattacattaching ones. puerto rico has an opportunity to do whatever it wants. right now short term, like you said, they have a huge amount of debt because they've been funding any types of welfare programs, healthcare, all kinds of
incentives to gain entry for the island. their unemployment jumped 2%. if that happened in the u.s. that would be tremendous. puerto rico to stem the tide, at least, but there is a lot --s&p you saw credit ratings, and all three credit ratings agencies gave them a shot to the arm, which makes it hard to borrow money to fund the current spending that puerto rico has. they have a combined spending problem, debt problem, and economic activity which is falling precipitously and then that brain drain, which is people leaving the island, the professionals, young people who are meant to supplement the economy and pay for the programs that are currently in place. they're leaving the island. >> we'll talk after a short
break about the nature of those economic problems. how we got into them, and what a place can do to get out of them. this is inside story. >> aging america continues... healtly retirees lending a hand to their aging neighbors. >> it's been tough gettin' old... >> a story of humanity and dignity. >> everybody needs a little bit of help sometimes... >> we can do it! >> on al jajeera america
>> welcome back "inside story." on this edition of our program we're talking about the rippling impact of the deepening problems of puerto rico. it's growing under the weight of $70 billion in debt. unemployment is at 15%, more than twice the national average. kenneth mcclintock, is the united states the ultimate guarantor of puerto rico debt, and it washington the guarantor a last resort. >> no, at the end of the day
it's up to us to take responsibility of our debts. you may have a quick fix from washington, but it does not mean it will cover long term spending. i have one idea that i haven't found a forum to provide this idea. the people who are here on this program today are all puerto ricans, and puerto rico is on the mainland are already 5 million strong. if we can get 1% of all puerto ricosen on the mainland to decide to buy a vacation or retirement home in puerto rico every year, over five years we'll be able to inject $12 million of new money to help stabilize our real estate market and from there it would stop all the loss of equity that we're having in the real estate market.
that's one of maybe 100 good ideas that none of the political parties should have any problems with that could be implemented to start strengthening our economy. because it will be through economic growth spurred by puerto rico that we'll be able to start improving our economy . >> professor, you and i are closer to retirement than justin, does looking at diasp era forwards good investment be a good idea? >> that's assuming we can afford a good investment and generate enough individuals to the island. our federal funding is capped in puerto rico. and without other opportunities to invest in puerto rico, perhaps opening doors to global investment. i'm not sure that we're going to see the growth that we need to see. i should probably say also part of the debate hinges on whether
the status of puerto rico can be reinterpreted to bring investment to the island. >> i want to talk about the affect of the status debate on the future of puerto rican economy in the last segment of the program, but right now, justin, puerto rico's problem would be under utilization, there are empty factories, empty golf courses and the lowest anticipation rates, 40% of puerto ricos are economically active. there are more people needed to be doing stuff. >> yes, it's extremely low. what it may fail to account for is the secretary of economy in puerto rico which some have estimated to be 25 to 30%, which is pretty high compared to u.s. 18%.
so you have a lot of people who are persuaded to go outside of the government not to contribute to the tax system. one idea potentially the government could do besides cracking the whip to get those people to pay their taxes to insentize them to become entrepreneurs and join the network. there have been policies initiated, some were overturned. grants and businesses to educate people to become entrepreneurs. you're right, some of the capital is there. the entrepreneurs aren't necessarily there when you see the new corporate tax rate on new entrepreneurs in puerto rico has increased 60%. that's huge, a huge disincentive to start, grow and run a company. it's almost an unfair advantage for those on the island. >> there is the economic
dimension of the social reality of people being educated at public expense at the higher education system of puerto rico going on to create wealth on the american mainland rather than creating wealth in puerto rico. >> another way to look at that issue, a lot of federal fund ing to fund that public growth is locked in to cooperate corruption, and there are a number of initiatives that close the doors to the average puerto rico. the other problem is that sometimes doing business in puerto rico is complicated unless you have the right connections. this is part of the culture that has dominated over the past 100
years on the island. >> we'll talk about the way status, the long-running debate of the island of puerto rico interacts with politics and economics. this is "inside story."
>> welcome back to inside story. i'm ray suarez. the american economy has been slowly rebounding since the depths of the great recession in 2008, but it's been choppy and may remain that way. a report out today shows consumer confidence dipped slightly in february. puerto rico is one place that has not recovered as well as the rest of the country. on this edition of the program we're taking a closer look at the multiple problems holding puerto rico back. still with us from puerto rico, kenneth mcclintock former secretary of state and former president of the puerto rican senate. from hartford, professor from the university of connecticut
and here in washington, justin hagin, executive director of national puerto rico chamber of commerce. the three main political matters puerto rico are best known for their view of future status of the island. but if we were spending more time on the island and reading the local papers and listening to the political debates would there be much difference in their view of the economic future? do they have a different philosophy of running the island's government and running the island's public services so voters might choose not only between statehood and commonwealth but between a strong public sector, a weaker public sector. higher employment policies, lower borrowing policies. the nuts and bolts of running a place? is there a difference when it
comes to the parties , when it comes to those questions. >> you point to something that is a tragedy. puerto rico is the only place in the world where people do not align themselves politically based on their certainly economic ideology. therefore you have in each of the political parties you have conservatives, moderates and liberals in each of the political parties. that's the unnatural state of puerto rico politics caused by the fact that we have this political status problem to resolve. president obama in the march march 2011 white house report on puerto rico's status he said that puerto rico's economic problems will not be fully resolved until we deal with our political status problem. >> justin, your main question is economic development. that's what you're about. that's what you're working on. do you agree with kenneth mcclintock that the uncertain
future of economic status makes it harder or are there really realities o on the ground that o matter what puerto rico's status were, it would make economic development harder now. >> i wouldn't dare touch the status with a ten foot pole in fear of being mobbed when i left this studio. but to see puerto ricans serve the front line, and some i in a greater extent and die at a greater rate, but not being able to vote. that's a tragedy. but i'm not--i'm not in as far as economically speaking, certainly if puerto rico were to become a state i would be concerned about the welfare capacity of the state. there are a huge percentage of
welfare recipients in puerto rico. plus the federal taxes that they would have to pay from puerto rico, it could potentially be a detriment to the economy. but there are studies that show hawai'i and alaska both before and after benefited by becoming a state. there are compelling arguments both ways, so i'll leave it . >> professor does the attempt to pull puerto rico out of its economic decline end intertwined in a challenging way with these questions of future status? >> let me clarify. two points need to be clarified before i can answer that question. the first is towards your initial question whether there are differences in the partisan economic approaches. what we've seen is that since
the approach has been trickle down austerity approach and measures where there has been an increased push in private and public partnerships at a local level. there has been a move away from public strength in public institutions. relating to the status question, i don't disagree with former secretary of state mcclintock, but statehood is impossibility for puerto rico. i can't imagine a congressmen who will allow to bring in new senators and representatives who would align themselves with the democratic party. and then what are the long-term and longer-term possibility of puerto rico given the student of statehood, and then we're stuck with a model that depends on federal funding to build a local economy.
in that sense given that the past 20 years have demonstrated public-private initiatives, austerity measures and trickle down economy has failed, the second way to go is to start strengthening our public institutions to generate income and maintain an anti-corruption system. i think the way forward is realizing the current status has maybe modified slightly, but we need to set an opportunity given what the relationship between puerto rico and the united states. >> this is a huge challenge. we're not going to solve puerto rico's problems in the confine of this program, thank you for joining us. in washington, i'm ray suarez.
>> welcome to al jazeera america. i'm del walters. these are the stories we are following for you, the battle in ukraine shifting to the south as prorussian and anti-russian protesters scuffle in the streets. a sentence for those men convicted of killing a british socialed in brood daylight. and executives from credit suisse facing acquisitions of helping americans evade their taxes. ♪